There is no one in the world of real estate, who doesn’t know that the word “Location” is the one that can make or break someone’s real estate career. But, what does that exactly mean? What should you know about a specific location before you buy a property for a long-term rental? Will you buy it because it is in your city or state, or because it is one of the best real estate hot spots to invest? Maybe, you have someone there who will look after it? The reasons can be plentiful.
In most cases, people will buy property that is closest to their place of living. However, if you decide to do the same, there are high chances that you will make a wrong purchase. Buying a property in a local market with clearly poor returns is far riskier than buying a property in an out-of-state market that promises strong returns. The key to succeeding in real estate is to initially minimize your risks, and then fully maximize your returns. But, how do you do that?
What to consider when choosing a place to invest in property
First of all, start by clearly defining your end goals. Before you start considering various hot spots and locations, you should figure out what is exactly the purpose of your investments and what do you expect from it. Some markets can be quite good for a great cash flow, but not so much for appreciation. Making a decision of what is more important to you must be your starting point.
Once you have established your objectives, it is time to determine what are the hot spots that can effectively fit those objectives.
Start from the top and head downwards
Begin at a macro level. Try to identify MSAs or Metropolitan Statistical Areas that might look interesting. The Federal Government defines an MSA as one, or some counties that have a population of at least 50.000 and at least one urban core. There are exactly 366 MSAs in the country so that you will have a wide choice.
Once you have identified some interesting MSAs, proceed by accurately analyzing the economic and financial properties of the area. The best way of doing that would be to determine the overall financial and industrial health of a city or area. You can do this by paying attention to the following factors:
1. What is the population?
Since you will need people to rent your property, search the cities with high populations. Try not to go less than 100.000. Most real estate investors prefer cities with populations between 200.000 – 1.000.000.
2. Shrinking or growing population
This is perhaps the most important factor. If the population of a particular city is shrinking, that means you will have much less potential renters in both near and distant future. Population decrease is a clear indication of a city’s poor financial health. Always make sure to look for the cities that have a population growth above the national average.
3. The unemployment rate
Employment is yet another indicator of financial health. If people have no jobs, they won’t be able to pay for rent. It is as simple as that. Make sure to look for cities with rising employment trends.
Last, but not least, check the cities for their crime rates. Before making a choice, you will have to determine which areas are perfectly safe and which are filled with crime. Just remember that crime rates can vary from area to area or neighborhood to neighborhood.